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04/13/2008

Food Prices and Malthusian Economics--Posner's Comment

Becker is right of course that a growing demand for food, resulting from world population growth, relative to supply cannot explain the very steep food-price increases that have occurred since 2006; world food prices are 75 percent higher than they were that year and obviously world population has not grown by that percentage, But I do not take this to be a refutation of Malthus, whose insights have relevance to the modern world.
Malthus argued that if a population is living at the subsistence level, if population increases geometrically (for example, a couple has three children, each of the three children eventually marries and produces three children, and so on) but food production only arithmetically, there will be more people than can be fed, and so population will decline through starvation, disease, or war until a new equilibrium is reached. (Because the population is assumed to be living at the subsistence level, the equilibrium cannot be achieved through higher food prices.) Malthus did not foresee the technological advances that have resulted in a faster rate of increase in the food supply than in the population, or increases in wealth that enable food prices to rise to prevent shortages should demand outrun supply. Nor did he foresee modern contraception technology, or China‚Äôs one-child policy. But given his assumptions, his analysis is sound and it gave Darwin the clue he needed to develop the theory of natural selection. In Malthus's model people kill each other to avoid starvation, and those who do best in the desperate struggle survive--hence survival of the fittest as determined by a competitive process.
As Becker points out, Paul Ehrlich and others predicted in the 1970s (beginning with the first "Earth Day," in 1970) mass starvation as a result of continuing population growth. They were wrong, in part by failing to predict the Green Revolution, which greatly reduced the cost of food production. The situation today is different.
The demand for agricultural products has grown, though not as a result of population growth; instead as a result of increased demand for ethanol and other biofuels, and for food that requires more agricultural acreage to produce. Today, besides people and pigs eating corn, our motor vehicles "eat" corn that has been converted into ethanol. And in China and India, which together contain a third of the world's population, increased wealth has led to an increased demand for meat, in China for beef. Cattle eat corn and other crops and are in turn eaten, but the amount of crops consumed in this process is several times greater than the amount that would be consumed if people ate the crops directly, rather than indirectly by eating vegetarian farm animals. China's consumption of beef, which has been growing rapidly for a number of years, is expected to grow 4 percent this year--yet it will still be only about 15 percent of U.S. beef consumption per capita.
Increased demand for agricultural products should lead to increased supply, but the supply response is limited because of the higher price of gasoline, an important input into food production, and because of scarcity of good agricultural land (in part a result of population growth), which implies an upward-sloping supply curve for food..
The fact that increased demand for agricultural products, and resulting high prices, are due to factors other than growth of population does not make a demand-supply imbalance any the less serious. We may be seeing the beginnings of an attenuated Malthusian response in Egypt, where there have been riots recently over food prices. Egypt is a poor country, and to avoid violence the government has had to increase its food subsidies--making the country poorer and hence more vulnerable to political instability, which could result in an Islamic insurrection. In poor countries today, as in ancient Rome, keeping the urban population happy is the foremost political imperative, because urban riots, especially in a nation's capital, can bring the government down. Urban residents are not farmers, so rising food prices only hurt, and do not help, them. But urban food subsidies immiserate the rural population, and limits on food exports, designed to control domestic food prices, disrupt the international agriculture market.
Our ethanol subsidies, and equivalent policies, such as the European Union's rejection of genetically modified foods, and the wealthy nations' (including the United States') tariffs on agricultural imports, could in principle be abandoned in order to increase the supply of food. But domestic interest-group pressures (which in the United States include the disproportionate influence that Iowa exerts in presidential politics) make reform unlikely.

Comments

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Rich countries aren't the only ones messing around with food markets. Take, for example, Argentina. for us the rise of food price was a blessing, specially if we consider that we had a terrible crisis a couple of years ago.
But the goverment instead of fomenting food production decided to tax our farmers. For example, the goverment keeps almost 40% of the selling price of soybean. Meet, milk, corn and other crops are also heavily taxed and, in some cases, the goverment forbids exports.
A crazy world.

Thomas you may have to do a bit more digging to find out why folks have children than in the economic world of 'cost/benefit'.

"If people respond to incentives when choosing to bring a child into the world, as an economist might expect, then the population would increase as the cost of raising a child decreased, and peak as food (and other costs of living) prices began to rise."

....... your model might have some relevancy in third world nations where, despite the crippling costs of bearing children they are added hands in the fields and perhaps the parent's and grand-parents ONLY security in old age.

But in the developed world can you make any economic argument for either the well-set or low income family to bear the costs of raising and educating their kids? Methinks the answer will be found somewhere nearer to women commenting on "biological clock tickings" the genetic urge to pass on DNA, and a man's urge to pass on his hard-earned skills of fly-fishing and hard-earned capital assets to those of his own.

It isn't important that the benefits of childbearing are intangible, spiritual, biological, natural, or whatever. The important premise is that these intangible benefits are weighed against costs -- in this particular case, the cost of feeding one's children. As this cost increases, more and more people will decide to have fewer and fewer children, regardless of how intangible the benefits are, so long as there's some kind of "weighing up" process involved..

The closing remark about presidential politics, of the past, recalls a factor impacting the present. The current dominos of commodity and currency revaluations were pushed over by the Bush tax cuts and related economic policy decisions. His campaign said this approach would 'prove out' years later. Not.
Another factor too is speculation, now done in real-time. If there's a frost in China, or a mite the Ukraine, then that propels speculation about future demand and prices. Today's price/value of corn-as-corn is less objectively measured, and it trades jaggedly alongside fertilizer-as-petrochemical and dollars-as-inflated.

Leon.. yeah, that's about right, as we see the fertility rate of the advanced nations as much lower than the poor countries. But it's more of the total costs, say in the nations where its expected that soccer and going to college is part of the deal, rather than food costs.

Having spent time in Korea when it was quite poor, I think I saw more of a reverse curve, "tragedy of the commons" effect as despite the nation's difficulties in feeding itself, there was the hope that out of many kids (even after leaving agriculture behind) that one might prevail and 5 might provide a form of SS in the old age of the parents.

"Something" must explain the difference in fertility rates between Europe and the US; is it that we've still space? or higher rates of religious participation in sects that encourage higher procreation rates? Optimism? Wars?

I agree with most of what Prof. Posner writes in this piece, but I'm not sure I see how urban food subsidies make farmers worse off. Is this an argument that the tax incidence on the rural population (i.e., to fund the subsidies) exceeds the increased price paid to farmers due to the food subsidy? Perhaps this is the case, but it depends on elasticities of supply and demand for food and how the subsidy is financed. In contrast, restrictions on food exports unambiguously hurt the domestic agricultural sector.

What about the silly popularity of "organic" food in developed countries? Less efficient food production ("organic") is highly valued in developed countries. A few farmers in developing countries cater to these markets. Food production goes down. Great, job greenies.

When Judge Posner's outlook on our capacity to formulate sensible trade and distributive policies (as in subsidies and tariffs) that affect us all is so pessimistic, it gets my attention. In the U.S. we're long on consumption but short on progress and, it seems, sustainable shared values. The implication-by-process-of-elimination is that it'll take another Depression or major war to shake us from a national hangover. Nobody alive who's actually survived either one looks forward to a repeat.

How many young people express an interest in being farmers? It seems to me that, at least in the midwest, many farms have been sold for lack of legacy to farm to people trying to escape the madding crowd. The peasants don't even want the land. Probably a good thing too else the idiot politicians would "re-distribute" it and then there would be real price inflation

MS "Silly" is a risky door to open in discussing the economics of wealthy nations! Organic farming might be 'silly' in terms of maximize yields as measured in tons, but if organic provides the "hook" for small farmers to live on their land and grow crops locally, and perhaps deliver them, fresh and directly to the consumer at popular "Saturday Markets" that provide family entertainment and give kids, and adults some connection to the land it may not be silly at all.

Perhaps we need a silliness scale to use for comparison? Say near the top would the activities and rewards of "Wall Streeters" who are paid exorbitant fees for either accomplishing very little or as we see with the Delta-NW lash-up and the recent incestuous hook up of the two satellite radio broadcasters, creating oligopolies whose market power precludes competition.

"Silly" is tough to define these days! "Reality TV?" Papparazzi as a viable industry? The hard part of constructing our scale would the that of establishing the non-silly end!

Does anyone remember "victory gardens" and canning? For that matter, does anyone remember cooking at home. Division of labor is great when markets and distribution work. When not, best to have a few basic skills and a source of supply, maybe even a big dog and a shotgun.

Give please. Prove all things; hold fast that which is good.
I am from Tuvalu and know bad English, give please true I wrote the following sentence: "Following four hours of haggling, cb unanimously approved the city plan to build a billion police academy in college point."